16/08/2012 Newsnight Scotland


16/08/2012

Similar Content

Browse content similar to 16/08/2012. Check below for episodes and series from the same categories and more!

Transcript


LineFromTo

to make it possible for dad. Tonight on Newsnight Scotland, more

:00:08.:00:11.

trouble for the Royal Bank of Scotland, as they are subpoenaed in

:00:11.:00:14.

the US over the fixing of interest rates. Could scandals at the banks

:00:14.:00:19.

end up having a severe effect on the economy?

:00:19.:00:22.

And we explore how both tenants and landlords fear losing out in the

:00:22.:00:27.

housing benefit reforms. Good evening. Over the past four

:00:27.:00:30.

years, the banks have given us many lessons in greed, incompetence and

:00:30.:00:33.

recklessness, and in the process, they almost brought the world

:00:33.:00:37.

economy to its knees. But being stupid and avaricious is not the

:00:37.:00:39.

same as being criminal, and until recently, the bankers could console

:00:39.:00:42.

themselves that while many of them were fired, by and large, they

:00:42.:00:52.
:00:52.:00:56.

weren't accused of being crooks. The latest banking scandals have

:00:56.:01:02.

changed all that. There have been accusations against HSBC of

:01:02.:01:09.

allowing money laundering by good cartels. And Standard Chartered has

:01:09.:01:14.

just agreed to pay the authorities in New York A $340 million fine for

:01:14.:01:22.

breaking sanctions against Iran. At first sight, the ongoing inquiries

:01:22.:01:26.

into manipulation of LIBOR may seem a more abstract and technical

:01:26.:01:31.

matter. But it isn't. The London interbank offered rate, to give it

:01:31.:01:36.

its full title, is the interest rate which determines how much

:01:36.:01:40.

banks have to pay other banks to borrow money. It played a starring

:01:40.:01:43.

role in the financial crisis, which started when interbank lending

:01:44.:01:48.

seized up. The latest scandal, which erupted at Barclays Bank

:01:48.:01:52.

early in the summer, concerns another aspect of LIBOR. The rate

:01:52.:01:56.

is set each day by banks telling a committee how much they have to pay

:01:56.:02:00.

other banks to borrow from them. The rates are then averaged out to

:02:00.:02:06.

give the LIBOR rate. The allegation is that some banks lied about their

:02:06.:02:11.

trades in an attempt to manipulate LIBOR. That is a big deal,

:02:11.:02:17.

particularly in the United States, where there are almost 1 million

:02:17.:02:21.

mortgages where what householders pay depends on LIBOR. But LIBOR

:02:21.:02:26.

influence is much more than that. Something like 800 trillion dollars

:02:26.:02:30.

of trades are dependent on it. That is a lot of people with a grievance

:02:30.:02:34.

if it turns out that the rates were manipulated. Barclays has already

:02:34.:02:39.

been fined, but it has been known for months that that was just the

:02:39.:02:43.

start. RBS has already sacked people over the LIBOR scandal, and

:02:43.:02:50.

has said it expects to face a huge fine in the UK. In fact, listing

:02:50.:02:54.

major international banks are not involved in this would be quicker

:02:54.:02:58.

than listing ones which are. I am joined from Edinburgh by the

:02:58.:03:01.

financial journalist Ian Fraser, who is writing a book about the

:03:01.:03:04.

Royal Bank for publication next year, and by Ray Perman, whose book

:03:04.:03:10.

on the downfall of HBOS is out next month.

:03:10.:03:15.

Ian Fraser, on these latest investigations, it is interesting

:03:15.:03:20.

that they have been carried out by two of the states in America,

:03:20.:03:25.

Connecticut and New York. Presumably, if they claim they are

:03:25.:03:29.

acting on behalf of borrowers and investors in their state, then just

:03:29.:03:34.

about every other state could follow suit? That's right, this

:03:34.:03:40.

could be the tip of the iceberg for US investigations into LIBOR. There

:03:40.:03:44.

seem to have been many different investigations are under way in the

:03:44.:03:48.

US. There is also the Department of Justice and the Federal Bureau of

:03:48.:03:53.

Investigation. There are a number of other federal bodies which are

:03:53.:03:58.

looking into it. And the possibility of so-called class

:03:58.:04:03.

actions, where individuals take action? To come fern macro, there

:04:03.:04:08.

are about 280 lawsuits which are either under way or planned in the

:04:08.:04:14.

US against banks which manipulate the LIBOR rate. Ray Perman, if you

:04:14.:04:21.

are a bank, how do you react to this? It is starting to look as if

:04:21.:04:29.

there are almost unlimited potential penalties to this. Royal

:04:29.:04:32.

Bank, where Stephen Hester, the chief Executive, made a statement

:04:33.:04:37.

on this a couple of weeks ago, the banks have been trying to say it is

:04:37.:04:41.

a few individuals and it was never corporate policy at the back and

:04:41.:04:47.

they didn't know about it. It was rogue traders. The Royal Bank has

:04:47.:04:54.

fired four people. That will come unstuck if the prosecutors in New

:04:54.:05:02.

York and Connecticut can prove that somehow, the bank knew about this.

:05:02.:05:06.

In one of the cases of the executives far by the Royal Bank,

:05:06.:05:09.

he is taking action for unfair dismissal against the bank, saying

:05:10.:05:15.

everybody knew about it. It is fraught with problems for the banks.

:05:15.:05:20.

Ian Fraser, the fact that Barclays agreed to pay a penalty, presumably

:05:20.:05:25.

does not do them any favours when it comes to this any more than

:05:25.:05:28.

standard chartered agreeing to pay a penalty does their case much

:05:28.:05:33.

good? A think Barclays were hoping that if they collaborated with the

:05:33.:05:43.

authorities, like UBS is also doing, ie to provide evidence, it believed

:05:43.:05:46.

that by doing this, it would suffer less reputation of damage and

:05:46.:05:51.

possibly receive lighter fines. It also negotiated immunity from

:05:51.:05:56.

criminal prosecution in the US alongside that settlement. So

:05:56.:06:01.

Barclays may have played this, with the benefit of hindsight, quite

:06:01.:06:11.
:06:11.:06:12.

cleverly. RBS is not collaborating to the same extent. It is in a

:06:12.:06:14.

dispute with the Canadian authorities about handing over

:06:14.:06:19.

evidence, including e-mails and text messages. What is your sense

:06:19.:06:23.

of how big this could be? Some are describing this as the tobacco

:06:23.:06:31.

moment for the banks. Damian that when proof was provided of the

:06:31.:06:36.

connection between lung cancer and cigarettes, tobacco companies were

:06:36.:06:40.

opened up to multi-billion-dollar lawsuits. Ian Fraser, do you think

:06:40.:06:45.

this could be a similar moment for the banks? It probably is. It is

:06:45.:06:50.

the end of an era for the banks when they were basically given

:06:50.:06:54.

carte blanche to do whatever they wanted by regulatory judicial

:06:54.:07:02.

authorities. 27th June 2012 will be a moment in history when that era

:07:02.:07:06.

of lax regulation, when banks believe they were above the law and

:07:06.:07:14.

could do what they wanted, came to to be seen whether that will be the

:07:14.:07:19.

case. Ray Perman, every other aspect of this financial crisis

:07:19.:07:25.

that has been rolling since 2007 has had bad implications for the

:07:25.:07:30.

economy. I wonder if this could, too. Many may not feel much

:07:30.:07:34.

sympathy for the bags having to pay fines, but when those fines run

:07:34.:07:39.

into billions of dollars, as they already are and could go much

:07:39.:07:44.

further, it will not make it any easier for the banks to lend money?

:07:44.:07:48.

No, and it will take the attention of the chief executives of banks

:07:48.:07:52.

away from what they are supposed to be doing, which is lending money to

:07:52.:07:57.

the economy. But the fines are only the tip of the iceberg. As you

:07:57.:08:00.

mentioned, there is a huge number of people who could have lost out

:08:00.:08:05.

from having the LIBOR manipulated. They could take action against the

:08:05.:08:10.

banks. There could be civil actions rolling on after the regulatory

:08:10.:08:14.

actions and after the judicial inquiries. So this is a Tobacco

:08:14.:08:19.

moment, you agree? It could be hugely disastrous for the banks and

:08:19.:08:23.

go on for a long time. In the short term, Ian Fraser, something will

:08:23.:08:28.

have to be done about LIBOR, given that 800 trillion dollars' worth of

:08:28.:08:36.

investments rely on it. The whole system, it seems, was based on the

:08:36.:08:39.

possibility of trust, and it is no longer possible to trust the people

:08:39.:08:49.
:08:49.:08:50.

LIBOR will have to be replaced, and an alternative system is being

:08:50.:08:55.

sought out and one of those looking for it gave an announcement and

:08:55.:08:58.

said it should be based on actual trains rather than imaginary ones.

:08:58.:09:05.

That in itself would be a positive step. The trouble is that there are

:09:05.:09:09.

a lot of legacy issues relating to LIBOR and Ray Perman has raised

:09:09.:09:14.

those, possibly 800 trillion - a vast amount of derivatives and

:09:14.:09:18.

contracts which depend on that rate. A lot of people who took out those

:09:18.:09:22.

contracts believe they have been cheated and conned by the banks.

:09:22.:09:28.

will have to leave it there. The UK Government is currently

:09:28.:09:31.

overseeing the largest overhaul the welfare system for a generation.

:09:31.:09:35.

One of the biggest target for the Department of Work and Pensions is

:09:35.:09:38.

they amount they pay out in housing benefit. They are bringing in a new

:09:39.:09:47.

system which will give new tenants some tough choices.

:09:47.:09:52.

# I light the fire, you place the flowers in the bars.

:09:52.:09:57.

Having a roof over our head is seen as a basic human right but what if

:09:57.:10:02.

we cannot afford the rent for that room?

:10:02.:10:12.
:10:12.:10:17.

# Our house is a very, very fine William that Salonen is probably

:10:17.:10:20.

warranted one-bedroom flat and for the last decade, he has been his

:10:20.:10:27.

mother's main carer when he moved into this flat. He is on

:10:27.:10:30.

jobseeker's allowance so housing benefit paid his rent but he is

:10:30.:10:34.

having no luck finding a job. received full housing benefit which

:10:35.:10:38.

means I can afford the property at the moment but because I will not

:10:38.:10:43.

have that for rent and housing benefit and will not be able to

:10:43.:10:48.

afford it so I will have to find somewhere pretty sharp. So if you

:10:48.:10:52.

cannot afford to stay here, that is just tough. What would you say to

:10:52.:10:58.

that? I have just as much right as everybody else. It is not those

:10:58.:11:06.

people's fault, it is just circumstantial. It is life, people

:11:06.:11:09.

did put in these situations but it is not necessarily their choice.

:11:09.:11:14.

Because of new housing rules being extended to those under 35 than in

:11:14.:11:19.

private accommodation, by Christmas he will have to move or find an

:11:19.:11:24.

extra �90 per month in rent. terms of young single person's for

:11:24.:11:29.

example, previously under 25 he was access in another allowance, that

:11:29.:11:35.

has been increased to under 35s so people in that ten-year age bracket

:11:35.:11:39.

who have been quite used to having a one-bedroom property and being

:11:39.:11:43.

able to access housing benefit for a one-bedroom property and now

:11:43.:11:47.

suddenly they will only be able to access housing benefit for a shared

:11:47.:11:51.

room property so they will have to move. It is not just those who are

:11:51.:11:54.

renting privately on housing benefit to have got decisions to

:11:54.:12:01.

make. For those renting from the council or housing association,

:12:01.:12:07.

they may have to pay more. It has been nicknamed the bedroom tax and

:12:07.:12:13.

if it is deemed to have a house larger than you need. If households

:12:13.:12:18.

are deemed to be living in a property of one more urgent than

:12:18.:12:22.

the DWP thinks they need, then the benefit will be cut. If they have

:12:22.:12:28.

two more rooms, it will be cut by 25%. Because a large number of

:12:28.:12:33.

tenant households will have no choice but remain where they are

:12:33.:12:35.

because of the shortage of smaller properties, this means they will

:12:35.:12:40.

have to find the short ball themselves in order to pay the rent.

:12:40.:12:44.

First, this is not a bedroom tax. It is a tax against under occupancy.

:12:44.:12:53.

And with a shortage housing for people desperately in need, I think

:12:53.:12:56.

it is useful bat under occupancy is penalised. I do not think it will

:12:57.:13:04.

frost people into dangerous areas. These are part of the Government's

:13:04.:13:11.

welfare reforms, and they do not want any household earning any more

:13:11.:13:19.

than �25,000 more in benefit. 30% by a work either for part time.

:13:19.:13:23.

have the criticisms of the welfare systems were that quite a lot of

:13:23.:13:27.

people, even if they were to go out and get work perhaps on minimum

:13:27.:13:30.

wage, would not be much better off than they are in benefits.

:13:30.:13:35.

Sometimes even worse. It is the kind of situation we have had. The

:13:35.:13:40.

argument for the welfare reform that Iain Duncan-Smith is proposing

:13:40.:13:44.

is that you would be more certain that he would be better off in work.

:13:44.:13:48.

For everybody, they would get at least 20p in the pound more from

:13:49.:13:52.

their earnings that they would be better off and to that extent,

:13:52.:13:58.

nobody worse off. Under the new rules, tenants would received their

:13:58.:14:03.

housing costs directly rather than cash go to the landlord. It is hard

:14:03.:14:06.

for housing associations to raise cash and it is the housing benefit

:14:06.:14:11.

they receive that gives the lender a sense of security. Consequently,

:14:11.:14:17.

they have deep concerns. lenders see our sector as a good

:14:17.:14:22.

risk because the revenue stream is likely stickier. Bringing

:14:22.:14:26.

insecurity into that framework means the lenders will be worried,

:14:26.:14:29.

it will affect the terms of availability of private finance and

:14:29.:14:36.

traditional lenders... We think universal credit will worsen the

:14:36.:14:40.

situation. Supporters of these changes say it is all about the

:14:41.:14:45.

choices we make. I know that there are difficulties here but I know

:14:45.:14:48.

that there are many, many people within the public and voluntary

:14:48.:14:52.

sector who would like those who are on benefits to keep quiet and stop

:14:52.:14:56.

interfering with the way that their benefits are administered. I think

:14:56.:14:59.

we should take a more responsible attitude and trust people. That is

:14:59.:15:05.

why I support the idea of paying benefits directly to the claimant

:15:05.:15:08.

so it would encourage people to be more responsible about how they

:15:08.:15:11.

lead their lives. I think we should protect that there should be a

:15:11.:15:14.

proportion of people that get into serious difficulty and lots of

:15:14.:15:19.

people who are a bit worse off and a bit more miserable. And I think

:15:19.:15:25.

that we clearly have a housing system at the moment that is quite

:15:25.:15:28.

dysfunctional, not investing in a way it should be, that is not doing

:15:28.:15:33.

the economy any good at all. These will their reforms will not do

:15:33.:15:36.

anything to help kick-start that side of things. The UK Government

:15:36.:15:41.

says that the housing benefit costs have been spiralling upwards out of

:15:41.:15:46.

control. They say like those in the private sector, those on housing

:15:46.:15:49.

benefit will have to be far more realistic about where they can

:15:49.:15:55.

afford to live. But critics believe the changes will damage the rented

:15:55.:16:05.
:16:05.:16:05.

housing sector, closing the door on Tomorrow's front pages, starting

:16:05.:16:09.

Download Subtitles

SRT

ASS